I recently sat down with Izabella Kaminska for a Substack Live to unpack the renewed interest in dollar swap lines, particularly the possibility of extending them to countries like the UAE. What might seem like a technical plumbing issue in global finance is, in fact, a window into something much bigger: the evolving role of the dollar system as a tool of financial statecraft. Our conversation ranged from the mechanics of swap lines to their geopolitical implications, and ultimately what they tell us about the future of dollar dominance. I highlight some of these details below.
Before diving into these highlights, though , I would strongly encourage readers to check out Izabella’s Substack, The Peg. It’s one of the best sources out there on stablecoins, global payments, and the evolving financial architecture. I regularly read it. A must read for those following the digital payment space.
Here are the key takeaways from our discussion:
Not all “swap lines” are the same
There’s an important distinction between Fed currency swap lines and the Treasury’s Exchange Stabilization Fund (ESF).
Fed swap lines are standing arrangements between central banks to provide dollar liquidity, think ECB, BoJ, BoE.
The ESF, by contrast, is a Treasury tool with a long history (dating back to the 1930s) and more discretion, often used in targeted and sometimes controversial interventions (e.g., Argentina in 2025).
Swap lines are less about usage, more about signaling
One of Izzy’s key points: these facilities often don’t need to be heavily used to matter.
Their mere existence reassures global dollar funding markets, similar to how deposit insurance stabilizes banking systems.
In that sense, swap lines act as a backstop for the eurodollar system.
Why the UAE? Why now?
The UAE’s reported interest in a swap line comes amid regional stress (geopolitical tensions, weaker oil revenues, potential capital outflows).
Even countries with large sovereign wealth funds can face liquidity shortages. Assets are not the same as cash-on-hand.
A swap line would provide immediate, stigma-free dollar liquidity without forcing asset sales.
This is as much about geopolitics as liquidity
The expansion of swap lines beyond traditional allies would mark a shift from purely crisis tools to instruments of strategic alignment.
There’s a plausible “quid pro quo” dynamic: access to dollar liquidity in exchange for geopolitical concessions.
The UAE’s position—potentially sitting between U.S. and Chinese financial spheres—makes it especially interesting.
A quiet challenge to the IMF model
One of the more provocative ideas: swap lines could evolve into a bilateral alternative to the IMF.
Unlike IMF programs, swap lines can be faster, more targeted, and come with different (or less visible) conditionality.
In a more fragmented global order, this kind of parallel system could become more important.
China’s swap lines are different
China has more swap lines numerically, but they are used far less for liquidity support.
Instead, they function more as tools of diplomacy and influence.
The key difference: the dollar system provides deep, liquid assets—China’s system still struggles on that front.
Dollar dominance is not fading, it may be strengthening
Despite all the “de-dollarization” talk, the data point the other way.
Dollar usage in global payments is rising, and even Chinese institutions continue to accumulate dollar assets. See Brad Sester’s recent thread on China’s dollar holdings. And see the figure below.
The reason is straightforward: the dollar system still provides the safest, most liquid, and most credible financial infrastructure.
Implications for the Fed’s balance sheet
Swap lines can expand the Fed’s balance sheet, but usually only temporarily.
Again, the signaling channel matters more than actual usage.
Still, this reinforces a key tension: you can’t fully shrink the Fed’s balance sheet while it serves as the world’s dollar liquidity provider.
What to watch going forward
Any formal announcement of swap lines with non-traditional partners (like the UAE).
Signs of coordination—or tension—between the U.S. and China in third-party financial hubs.
Shifts in global financial centers (e.g., Gulf states vs. London).
Whether these arrangements migrate from the Fed to the Treasury (via the ESF), which would signal a more overtly political use of liquidity tools.
